RECENT pronouncements by the Alliance For Change (AFC), on the matter of Guyana’s international reserves, are indicative of a “worrying lack of basic knowledge of macroeconomic accounts, of the framework within which external reserves are generated and managed” and of recent developments in the global and domestic economy.

This was according to the Ministry of Finance, which responded with a scathing statement to Moses Nagamootoo, AFC’s Vice-Chairman, who last Thursday commented on the issue.
Nagamootoo had pointed out that Guyana’s international reserves reduced from US$835M in 2012 to US$609M in November, 2014 and as such questioned, “Where did this money go?”
“The AFC needs solid assurance that the PPP regime would not further run down our international reserves; nor pile up more debts,” a statement from the party said, in subsequent endorsement.
The Ministry of Finance said: “The apparent bewilderment amongst the AFC leadership on the reason for the decline in Guyana’s foreign reserves, and their reckless speculation that the external reserves can be ‘dipped into’ for the purposes of financing government expenditure, are without basis or merit, and are reflective of an alarming lack of familiarity with both basic operations of government finance and recent developments in the economy.”

FACTS ARE FACTS
All considered, the Ministry of Finance also detailed the fact that reserves are held to meet defined foreign payment obligations such as sovereign debts, financing imports, absorbing unforeseen external shocks, and intervening in the foreign currency market during times of volatility.
The Bank of Guyana, by law holds and manages the country’s foreign exchange reserves, which include foreign currency deposits, treasury bills, bonds, gold and Special Drawing Rights (SDRs) with the International Monetary Fund (IMF).
“The Bank of Guyana has never used its foreign reserves for purposes other than those listed above. Moreover, the foreign reserves are not available at any time to finance Government expenditure,” the Ministry clarified.
Explained too was the fact that the quantity of foreign exchange reserves can change as and when there are changes in the value of imports, exports and capital flows which are reflected in the overall balance of payments position.
The Ministry said: “For example, an increase in net exports and capital inflows usually has a positive effect on the balance of payments which increases the level of foreign exchange reserves. A decrease in net exports and capital inflows will have the opposite effect. “

REDUCTION EXPLAINED
The AFC was corrected in that it stated that Guyana’s international reserves amounted to US$835M; in fact that figure was US$862.2M.
The foreign exchange reserves held by the Bank were US$862.2M, US$776.9M and US$665.6M at the end of 2012, 2013 and 2014 respectively.
The reduction in reserves in 2013 and 2014, according to the Ministry of Finance, is explained by its use to offset the balance of payments deficit of US$119.5M and US$111.3M caused by lower net exports and capital flows in 2013 and 2014 respectively.
“The principal contributing factor underlying the expansion in the balance of payments deficit, and by extension the decline in the foreign reserves, is the reduction in gold export receipts,” the Ministry said.
Total gold exports declined from US$716.9M in 2012, to US$648.5M in 2013, and to a further US$469.8 in 2014 – a reflection of the rapid decline in price observed over the period.
The Ministry said: “Put simply, while Guyana’s gold exports declined by US$247.1M from the end of 2012 to the end of 2014, Guyana’s external reserves declined by only US$196.6M during the same period.
“…one does not need a single modicum of formal training to be aware that gold prices have been falling recently, that this would affect export receipts and in turn overall balance of payments, and ultimately that this would impact external reserves.”

SEVERAL BENCHMARKS
Additionally, the Finance Ministry underscored the fact that there are several benchmarks for measuring the adequacy level of foreign reserves of a country.
“The most common measure is the import cover which is the level of foreign reserves to cover a number of months of import of goods and services. In 2014, the level of import cover was adequate with cover of 3.6 months, comfortably above standard benchmarks,” the Ministry said.
It added: “It also worthwhile to note that, at the end of 2014, the commercial banks foreign assets increased by US$44.2M from its 2012 level to US$357.6M, additional evidence of adequacy of foreign currency assets in the financial system as a whole.”
As such, the maintenance of adequate foreign reserves even in the face of declining export commodity prices reflects continued prudent management of the economy by the current People’s Progressive Party/ Civic Administration.
“To insinuate otherwise can only be indicative of either alarming ignorance or deliberate mischief,” the Ministry of Finance concluded.

“One does not need a single modicum of formal training to be aware that gold prices have been falling recently, that this would affect export receipts and in turn overall balance of payments, and ultimately that this would impact external reserves.” – Ministry of Finance